In wisely planning for your retirement, you invest $12,000 per year for 20 years into a 401-k investment account. (a) How much can you withdraw each year for 10 years, starting 1 year after your last deposit, if you want a real return of 10% per year when the inflation rate averages 2.8% per year? (b) For a spreadsheet function challenge, write a single-cell function that displays the correct 10-year annual withdrawal amount directly.
What will be an ideal response?
(a) if = 0.10 + 0.028 + (0.10)(0.028) = 0.1308 (13.08% per year)
A = 12,000(F/A,13.08%,20)(A/P,13.08%,10)
= 12,000(81.7076)(0.18488)
= $181,273 per year
(b) Function: = - PMT(0.1+0.028+0.1*0.028,10,-FV(0.1+0.028+0.1*0.028,20,12000))
displays A = $181,272 directly
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